Yahoo! is merely the latest company to realise there could be big value in its IP
02Mar12

Yahoo!’s demand that Facebook licence up to 20 of its patents is just the latest in a run of stories that have kept the issue of IP monetisation on the front pages in recent months. From the multi-billion Nortel auction to Kodak’s attempts to find a buyer for a number of its patents, the topics of selling, licensing and enforcing IP have never been such hot news.

Yahoo!’s move has been heavily criticised in some quarters. A headline in the Wall Street Journal declared: “Yahoo! goes trolling for dollars”; and some technology bloggers have accused the company of resorting to desperate measures because of its failure to innovate. The timing has inevitably raised some eyebrows. With its IPO expected within the next few months, Facebook may be more pressured into acceding to Yahoo!’s demands now than at another time.

However, a more benign view is that Yahoo! is belatedly putting its patent portfolio to some commercial use. Its latest chief executive, Scott Thompson, took the reins in January this year: formerly the president of PayPal, he is under pressure to turn the company around. Founded in 1994, Yahoo! may be a veteran in the internet sphere but it has had a turbulent few years and has lost considerable ground to its rivals. What Yahoo! does have, though, is a strong patent portfolio, including over 1,000 US grants covering social media, search and advertising.

Yahoo! has not revealed which patents it believes are being infringed by Facebook; however, commentators who have analysed its portfolio have come up with some suggestions. If Facebook has been using patents owned by Yahoo!, then it is surely reasonable for Yahoo! to expect to be compensated. “We have invested substantial resources into these innovations,” the company stated when announcing its move. “Yahoo! has a responsibility to its shareholders, employees and other stakeholders to protect its intellectual property.” Shareholders can be forgiven for wondering why it has taken so long for the company to realise this.

Yahoo!, of course, is not the first company to increase its IP monetisation efforts in recent months. In November, Hans Vestberg, CEO of Ericsson, told Bloomberg that he plans to increase the money the company raises from its IP and revealed that it had already managed to double income from patents in the previous five years. Vestberg is clearly among those CEOs who truly get the importance of intellectual property.

Also generating plenty of media interest has been Kodak. The venerable film company, now facing bankruptcy, put its patents up for sale last summer, and has more recently sought to monetise them by suing a number of companies including Samsung, Apple, HTC and Fujifilm. Not to be outdone, BT announced last December that it is taking action in the US against Google over alleged infringement of its patents by the Android system; and was no doubt at least partly inspired to do so by the news that Microsoft is generating hundreds of millions of dollars a year from Android-related licensing deals (most of which will head straight to the bottom line).

Then, of course, there was the groundbreaking $4.5 billion raised at the Nortel auction in June last year. While the high price paid was the result of unique circumstances surrounding the sale, it undoubtedly served as a wake-up call to all patent-owning businesses (and their shareholders) about corporate assets that may not be being properly exploited; especially as in both the Kodak and Nortel cases, questions were raised about why the companies failed to make the most of their valuable portfolios while they were still going concerns: could a better IP strategy have helped to prevent bankruptcy?

The Yahoo!/Facebook case is part of a general trend that should lead to all companies seriously evaluating their IP holdings. Given the widespread coverage that patents and other IP are now getting, there is no excuse for any chief executive to be unaware or unconcerned about them. The fact is that CEOs owe a duty of care to their shareholders to ensure that the companies they run are maximising the value of what they own. Shareholders, meanwhile, are clearly missing a trick if they fail to ask whether the businesses they invest in are making the most of their IP; and if not, why not?